Case law
6 August 2019

Supervisory board member a taxable person for VAT purposes

Last month, the Court of Justice of the European Union (CJEU) dealt with the question whether a member of a foundation’s supervisory board is a taxable person for VAT purposes. In the case in question, the supervisory board member did not act in their own name or for their own account, and did not bear any economic risk arising from their activity. The court thus concluded that the supervisory board member did not carry out economic activity independently, therefore was not a taxable person for VAT purposes.

Tomáš Havel
Petra Němcová

The Dutch case of IO (C-420/18) involved a foundation’s supervisory board member receiving a fixed fee for exercising an office, regardless of their actual participation in board meetings or hours worked. Under the circumstances, the board member was not authorised to exercise the powers vested in the supervisory board independently, but was acting for the account and in the responsibility of the supervisory board. On the other hand, supervisory board members were independent and required to act critically vis-à-vis other members of the board and the foundation’s managing body.

Because of the Dutch court’s doubts regarding the classification of the supervisory board member as a taxable person, the following prejudicial question was submitted to the CJEU: ‘Is a member of the supervisory board of a foundation who is in a subordinate position to the board as regards working conditions and remuneration but not otherwise subordinate to the supervisory board or to the foundation carrying out an economic activity independently for the purposes of VAT?’

The CJEU mainly focused on the economic nature and independent carrying out of the supervisory board member’s activity. The court concluded that the board member’s activity was indeed an economic one, as it was of a permanent nature and was carried out for consideration. The court also held that supervisory board members cannot be viewed as employees, even though their remuneration is subject to tax on income from dependent activity (employment) by operation of legal fiction, while they carry out their activity under a service agreement.

To answer the question asked, it was crucial to determine whether a supervisory board member bears the economic risk arising from the activity carried out. Here the Dutch court pointed out that members of the supervisory board in question could not exercise the powers vested in the board independently, but were acting on the board’s account and in its responsibility. The court thus held that is was obvious that independently, supervisory board members bear neither the responsibility arising from the board’s activity nor any liability for damage caused to third parties when exercising the office.

The CJEU thus concluded that, in the case in question, the supervisory board member did not bear the economic risk arising from their activity and did not carry out economic activity independently, as they received a fixed fee, regardless of their participation in board meetings or hours actually worked. Negligence, if any, committed while exercising the office, would not have a direct effect on remuneration. Therefore, they are not taxable persons for VAT purposes. The judgement itself is rather extensive, referring to many specificities of the case, and it is thus questionable how far it may be applied to similar situations in a Czech context.

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